Gold prices are in a downtrend based on technical chart considerations and the Federal Reserve’s consideration to taper its quantitative easing program is bearish for gold, says Ira Epstein of the Ira Epstein division of the Linn Group. “Do not make light of this shift, it’s very important as it means interest-bearing instruments and ones that produce returns on money have replaced the ‘safe haven’ thinking that drove gold for over a decade up to $1,900, which took place two years ago. The press rarely makes mention that gold has been declining nearly since August 2011. It’s hard to figure out where the decline ends, but $1,200, $1,100 and $1,000 an ounce are numbers being thrown around by a number of market analysts,” he says. A technical indicator, slow stochastics, suggests that prices could be in a downtrend “for a long time.” Stochastics measure momentum and shows where prices close in relation to the high-low range over a set number of periods.

Incrementum AG says “we remain firmly of the opinion that the fundamental argument in favor of gold remains intact” and lists a 12-month target of $1,480 an ounce. “There exists no back-test for the current financial era,” says a report from Ronald-Peter Stoeferle and Mark Valek. “Never before have such enormous monetary policy experimentstaken place on a global basis. If there ever was a need for monetary insurance, it is today.” Still, the firm says, “massive technical damage” was done during a sell-off, which will take some time to repair. The report says more than 500 interest-rate cuts have occurred around the world since 2008, with non-standard monetary policy measures becoming “standard” procedure. “Tapering and exiting from QE (quantitative easing) might be more difficult than market participants currently envision. Due to the high levels of debt, nominal interest rates must remain near zero and real interest rates negative, providing a solid foundation for future gold price increases,” the firm continues. The report calls for a “bottoming process” to begin soon and lists a long-term price target of $2,230 an ounce.

Goldman Sachs says it looks for a decline in mine output after gold’s price declines to help the metal hold around $1,200 a couple of years down the road. The investment bank earlier this week lowered its end-of-2013 forecast to $1,300 an ounce and end-of-2014 forecast to $1,050. However, Goldman says “while this forecast implies that the unwind of physical gold investments will push gold prices below its marginal cost of production, we expect that the ensuing likely decline in mined output will over the longer term maintain prices near $1,200/toz, which remains our forecast for 2015 and beyond.”

The Indian rupee remains soft but bounced from all-time lows after the country’s current-account deficit was a lower-than-expected $18.1 billion in the first quarter, compared to expectations of $21 billion, says Brown Brothers Harriman. “The improvement was largely driven by a pickup in exports and a minor decline in imports,” BBH says. “The news helped the currency rebound from record lows, but USD/INR is still unable to break below the key 60.0. Even though the worst of this selloff may be over for EM FX (emerging-market foreign exchange), we doubt INR will participate in any bounce in risk appetite as much as other currencies will. The currency will also remain a prime candidate to express negative EM views should the selloff continue. As such, we retain our negative bias towards INR.” Gold traders keep an eye on the rupee, since weakness can make the metal more expensive for Indian consumers and hurt demand, and vice-versa. As of 8:30 a.m. EDT, the dollar was at 60.190 rupees, down from a record 60.760 on Wednesday.

Market Nugget: UBS: Gold Appetite On Price Drop ‘Not The Same As It Was Back In April’

Thursday June 27, 2013 8:41 AM

Global physical demand is not as frenzied after the most recent price drop as on a gold sell-off this spring, says UBS. “Physical buyers have shown interest, and Asia in general is taking advantage of the latest price decline in bits and pieces. But the appetite is not the same as it was back in April, for now,” UBS says. “The most obvious disappointment is India, as buyers there struggle to cope with both a weaker currency and recent government measures. In addition to muted appetite on the back of the latest developments, the lack of clarity on what the new restrictions on the Indian gold market mean exactly for all those involved is also a contributing factor to the weakness. In China, interest is still decent and premiums remain at elevated levels. Yet, there seems no particular urgency at the moment.”

The “all-in” cost of producing gold is thought to be somewhere around $1,200 an ounce, UBS says. As gold slips toward this area, market participants are increasingly talking about the cost of production, although the bank says the precise level is hard to ascertain since it depends on the cost methodology, plus an average is misleading due to the diversity of gold production. “Nevertheless, despite limitations in the analysis, the consensus is that somewhere around $1,200 would be a reasonable estimate for all-in costs, on average,” the bank says. Still, prices below this cannot be ruled out, UBS says. “Production cannot react as swiftly and, at the end of the day, there is a substantial amount of above-ground stock of gold that is essentially idle, and which could fill in gaps that mine supply potentially leaves,” UBS says. “Any support that production costs might be able to provide in the short term would come more from the psychological element it offers rather than having an actual impact on market fundamentals. This dynamic would eventually become more relevant on a medium- to long-term horizon, when production has enough time to respond.”

Market Nugget: INTL FCStone: Gold 'Vulnerable' But Also 'Oversold'

Thursday June 27, 2013 8:11 AM

INTL FCStone describes gold as a market that both remains “vulnerable” yet could bounce from “oversold” conditions. The metal may have been hurt lately by the lack of inflation despite massive central bank easing, as well as more some curtailment of fiscal budgets around the world. “We also suspect that the precipi­tous decline we have seen in gold prices over the past week has also hurt physical offtake, since the buy­ers that poured into the markets after the April rout may now be reluctant to come back for ‘seconds,’ while first-time bargain hunters might be equally shy to commit to fresh buy­ing in light of the current price free-fall,” says commodities consultant Edward Meir. “About the only thing that is going for gold at the moment is the fact that its RSI (Relative Strength Index) is extremely oversold...with a read­ing of 21.50, below what we saw in April.” Meir later adds: “Given the lack of any fundamental drivers that could conceivably push prices higher, we suspect that rallies will remain vulnerable, although we would not rule out a rather sizable one setting in imminently given the extremely oversold conditions.”